A Central Bank of Nigeria (CBN) new policy directing banks to stop bancassurance activities has brought a major setback to insurance companies’ efforts to increase retail sales and deepen penetration through the bank channels, BusinessDay investigations reveal.
This policy directive which came in July 2014 has led banks to instantly withdraw their partnership agreement on bancassurance with insurance companies, a system that was contributing about 5 percent of insurance industry gross premium put at N15 billion as at end of 2013 financial year.
Bancassurance is simply an agreement between a bank and an insurance company whereby the insurance company distributes its products through the bank’s outlets and its customer base.
The CBN in July, issued a circular to all the banks alleging contravention of a regulation in 2010 which stopped them from indulging in non-permissible activities, including underwriting.
“The Central Bank of Nigeria has noted with concern that some banks engage in non-permissible activities including bancassurance, in contravention of the regulation on the CBN scope, conditions and minimum standards for commercial banks regulation No 01, 2010,” said the circular entitled ‘Bancassurance and other non-permissible activities’ and signed by Tokunbo Martins, director of banking supervision, CBN.
“Banks are therefore directed to henceforth cease such activities as the CBN will not hesitate to impose severe sanctions on erring banks. Please be guided by the above regulations,” it further said.
The cancellation of bancassurance simply means that insurance companies are not allowed to sell their products through bank outlets. In other words, the process of selling insurance services and products inside the banking halls and through their outlets will no longer be allowed.
“The implication really is that bank-owned insurance companies are stripped of the leverage and synergy they enjoyed by virtue of their being owned by the banks. In this case, such insurance companies would have lost the opportunity offered by such synergy which hitherto gave them platforms to sell and distribute their products to a mass market through the banks outlets spread nationwide,” said an industry expert on condition of anonymity.
According to him, the cost of sales and distribution they had saved by virtue of this partnership with their mother bank would now come to them as part of expenses, thereby increasing their cost of production. And no doubt, it could as well impact on their revenue as a lot of potential clients would be lost by not having the opportunity to access them through the banking halls any longer.
Other analysts who spoke to BusinessDay last night on the development said the policy might have been wrongly directed as banks were not into any form of underwriting in bancassurance, but rather provided their channels for insurance companies to distribute their products.
They added that it was a worldwide phenomenon and practiced in advanced markets, including Ghana and South Africa.
They were, however, quick to add that the CBN and the insurance industry regulator, the National Insurance Commission (NAICOM), should work together and come up with a workable framework on bancassurance, rather than stopping a system that is fundamentally relevant because of its success level in enhancing financial inclusion, and which is, of course, an international standard practice.
Magnus Okwor, an insurance analyst, said bancassurance channel was strategically relevant to deepening of insurance penetration, adding that under the channel, insurers leverage on the wider distribution coverage, huge customer base and payment infrastructure that supports high persistence of premium payments provided by the banks.
He cited the example of an insurance company which had sold about 300,000 policies over a period of one year in bancassurance relationship.
Tola Adegbayi, executive director, Leadway Assurance Company Limited, said even though bancassurance was yet to catch on because of regulatory constraints, it remained a potential growth platform that could push the percentage contribution to gross premium income (GPI) much higher than the current upper 5 percent bracket.
He said banks remained a significant distribution channel for insurers, adding that it would be worthwhile for the Nigerian Insurers Association (through the Nigerian Insurance Digest) or NAICOM to capture the contribution of bancassurance to overall GPI. This is even as overall industry penetration rate has remained stagnant at less than 1 percent of GDP, showing huge potential of a relatively untapped insurance market.
Modestus Anaesoronye
No comments:
Post a Comment